Wednesday’s precipitous selling may have been caused by margin calls. We dive into the impact and how it sets up for a bottom in the E-mini S&P and E-mini NQ, with tradable levels.
E-mini S&P (September) / E-mini NQ (September)
- S&P, yesterday’s close: Settled 5227.50, down 38.75
- NQ, yesterday’s close: Settled at 17,966.50, down 212.50
Equity markets fell precipitously in the second half of yesterday’s session, finishing at Monday’s intraday low. From yesterday’s high, this was a 3.5% move into the overnight for the E-mini S&P and more than 4.5% for the E-mini NQ. I have noted here and in my short ‘end of day’ videos that although there is a high probability a low area was created Sunday night, we expect continued choppiness this week. For one reason, there is tremendous overhead supply at Friday’s gap settlement, the area in which we failed yesterday. Second, as the market works through a consolidation across this region, there are margin calls carried from as early as Friday. In that case, Friday’s calls were at Day 3 yesterday which means forced liquidation. This explains, at least partly, once the selling started why it did not stop.
Today’s economic calendar brings Initial Weekly Jobless Claims, a number becoming increasingly important, especially after last week’s read hit a cycle high. The read came in better than expected at 233k versus 241k expected, soothing recession worries, but last week’s was revised up 1k to 250k. At noon CT, there is a 30-year Bond auction and it brings an interesting dynamic. With the yield curve steepening although yesterday’s 10-year auction was weak, the yield of the 30s has outperformed the yield of the 10s by about 20bps over the last month. This could be a defining moment for buyers to step in. In such a case, we see it supporting risk assets.
When compared to last Thursday’s reversal, yesterday’s selling was lower in volume. We believe this to support our narrative of a choppy but constructive consolidation. Given additional weakness after the settlement, both the E-mini S&P and E-mini NQ have ground to make up and a more difficult path in turning positive on the session. Our Pivot and point of balance noted below for each aligns with settlement and will be crucial through the first hour. If we see strength as the afternoon approaches, major three-star resistance in the S&P will become absolutely critical at 5262.50-5266.25, and a move above here will set the indices on a path of repairing just yesterday’s damage. However, a break below major three-star support in the E-mini S&P at….
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